If you’re thinking of starting a business, you’re probably full of enthusiasm and a sense of possibility – and maybe you’re a little daunted, too.
Like many aspiring entrepreneurs, you may have a great idea for the product or service you want to offer, and how to make a difference to your customers. But you also have an unenviable to-do list, ranging from setting up a business bank account to writing an in-depth business plan.
That’s why we’ve compiled some handy accounting advice for startups, to help you make good decisions and get off to a flying start.
Sole-trader, limited company, or partnership?
A major decision early on is whether to structure yourself as a limited company, a sole trader or a partnership.
Being a sole trader is the default business structure for many new business owners. Unlike limited companies, this structure makes no legal distinction between you and your business, and it’s often the simplest and cheapest to set up and administer.
However, because your sole trader business is not legally separate from you, you could find yourself personally liable if it gets into legal or financial difficulty.
From a tax perspective, your profits will also be taxed as income on your personal tax return.
A limited company offers you enhanced legal protection by making your business a separate entity to you as an individual. It also gives you better scope to manage your taxes, with profits subject to corporation tax, and the option to pay yourself a tax-efficient combination of salary and dividends.
These benefits of a limited company do come with an extra administrative burden, including registering with Companies House and filing annual accounts as well as your corporation tax returns. But many startups deem this a price worth paying, especially if they plan to grow.
Partnership variations of both the above structures are also available and may be preferable in certain industries. We can advise you on what’s best for you and then help you get set up to ensure you meet your legal obligations.
Your business plan
A business plan can be an important document to you, setting a path to follow and acting as a reference point for your decision-making. But it becomes an essential document if you need to rely on external stakeholders – say, a bank manager or other funding partner.
It will set out the nature of your business, how you will operate, what your strengths and weaknesses are – and any potential opportunities and threats too. Your plan will cover finance, projecting the startup capital required as well as income and expenditure.
A robust business plan will lend credibility to you, giving others confidence that you know what you are doing and can make a success of it. This is vital if you need external funding to meet your business goals.
Bookkeeping and your financial function
Any business needs to keep good records from the outset; for tax purposes, of course, but also for your operations.
It has become the norm now for even the smallest of businesses to use accounting software like QuickBooks or Xero. This streamlines your financial administration, making it easy to reconcile bank statements and perform tasks like sending quotes and invoices.
It is also the easiest way to work with external parties like bookkeepers and accountants, as well as staff members. This is because you can give anyone an appropriate level of security access to do the jobs you set them.
Thinking of the future
Any startup business is likely to be a fluid operation: always changing, always looking for growth.
This means other matters beyond the startup phase may quickly enter your inbox, including:
- employing your first staff and payroll
- if or when to register for VAT
- taking on new premises.
While you do not want to get distracted from immediate priorities, it is always sensible to forward plan and work out the best way of positioning yourself for each milestone you achieve. Keeping one eye on the horizon will stand you in good stead.
Access expert accounting advice for startups
We’ve covered many of the issues surrounding accounting for startups that you’ll need to consider in the early days of your new business. But, as you will know, there is much more to do.
Lumin can help you with all the accounting advice you need as you embark on your new business venture. Our essentials package is tailor-made for startup entrepreneurs like you. We’ll handle your vital processes and accounting tasks while you focus on building your business from the ground up.
Thinking of launching a startup? Switch to Lumin today to reach your full potential.
